Let the free market be free

The Internet has revolutionized the marketplace by, among other things, eliminating middlemen.

Internet car-buying services let you shop for prices and options without leaving home. "For sale by owner" websites show you houses for sale.

Uh oh. Can't have that, can we?

In a truly free market, businesses can't kill competition, because they can't use force. Unfortunately, in our "mixed economy," they can get their friends in politics to use force to stifle competition.

Adam Smith saw it all the way back in 1776. In "The Wealth of Nations," he wrote, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." He advised that any legislation such a group proposed "ought always to be listened to with great precaution." Detroit and its dealers wield enough influence in state capitals to make direct sales of cars on the Internet illegal everywhere but Alaska. Every year the automotive industry spends millions of dollars fighting government regulation, but when it can use government for its own ends, it does.

When I confronted David Hyatt, spokesman for the National Automobile Dealers' Association, about that, he said, "If the manufacturer sells directly over the Internet, it leaves the dealer in an unfair competitive situation."

"So what?" I asked. "The Internet put lots of middlemen out of business. Consumers like it. I don't want to buy from the dealership!"

Hyatt answered, "There is a very healthy system in place."

Healthy for his car dealers, anyway. Less healthy for consumers.

Similarly, now that more home sellers sell their homes themselves, real estate agents are using their political clout to try to protect their 6 percent commissions.

In 2001 and 2002, California's Department of Real Estate, run by (surprise) a real estate broker, sent warning letters to some "for sale by owner" websites, demanding that they comply with licensing laws for brokers. In 2004, a federal court held this demand unconstitutional.

Limited-service "discount" brokers also threaten brokers' 6 percent commissions. They offer services at lower rates, like a flat fee of $250 to host a two-hour open house or $499 to review the contract paperwork.